Hedge fund group Man leads FTSE lower on growth fears

Man , the world's largest quoted hedge fund, led the market lower on fears about its future growth.

The company's shares dropped 17.1p to 246p - a 6.5% decline - after it announced that the net asset value of its key AHL fund had fallen by 3.57% last week. At the same time Credit Suisse cut its price target from 320p to 300p. The bank said:

We are edging down our forecasts for Man group to incorporate guidance given on the conference call following the recent trading update and the weak AHL returns in the last fortnight. With the shares off 25% in the last three months it looks to us that the new numbers are fully reflected in the share price. It may however require a recovery on AHL/private client flows for the shares to start outperforming again.

Indeed, financial shares were some of the worst performers as the FTSE 100 fell back sharply once more, closing 59.38 points lower at 5217.47. The leading index had been in negative territory all day, hit by fears of falling demand in China, weak UK retail sales and an unexpected drop in US new home sales in December. Investors were also cautious ahead of the US Federal Reserve's latest policy statement, and President Obama's state of the union address.

New Basel proposals for capital requirements weighed on the banking sector, as did Obama's plans to curb the power of the banks. Morgan Stanley estimated the Basel plans could mean European banks needing to raise an extra €83bn. Disappointing results from Spain's BBVA also hit sentiment, rekindling fears of more bad debts for the sector. So Barclays fell 9.15p to 266.85p, despite Morgan Stanley putting an overweight rating on its shares, while Royal Bank of Scotland lost 1.81p to 32.99p. Commenting on RBS, analysts at UBS said:

We expect both the insurance business and the US regional bank to be sold to meet EU requirements. We figure a restructured RBS could be worth up to 100p a share by 2014, but this is subject to political and economic constituents agreeing to embark on a mutually advantageous disposal/restructuring programme. None of this is pre-ordained, and in our view a high degree of risk should be attached to such outcome. Our current price target is 42p, representing a 20% discount to trough tangible book [value].

Tullow Oil slid 56p to £11.60 after it placed around 80m shares at £11.50 each to raise some £1bn. The cash will be needed after Tullow decided to exercise pre-emption rights and bid for the other half of its joint venture in Uganda with Heritage Oil. Heritage had already agreed to sell to Italy's Eni, and it is now up to the Uganda government to decide which bid it favours.

There were some bright spots. Defensive stocks were in favour again, with British American Tobacco 25p better at £20.70. International Power added 1.3p to 319.2p as it announced a restructuring of the A$742m debt at its majority owned Hazelwood power station and mine in Australia. The company has also completed the financing for a 110MW project in Thailand, with the majority of the output sold to the Thai generating authority under a 25 year deal. Lakis Athanasiou at Evolution Securities said:

The re-financing issues surrounding debt is sufficiently far out not to weigh on the market. The main current issue is the bid speculation with GDF Suez and how International Power will respond to this. We believe it will move to a higher payout ratio.

Defence group Cobham climbed 2.6p to 233.1p after a positive note from Morgan Stanley, as did BAE Systems, 2p better at 355.3p.

Resolution, the acquisitive insurance group, rose 1.9p to 81.55p as it beefed up its board with three independent directors "with experience and expertise across the European financial services industry. Between them the three have worked for - among others - Swiss Re, Aviva, and Generali.

But Vodafone dipped 0.05p to 134.8p despite US group Verizon reporting better than expected subscriber growth at the two companies' wireless joint venture. It added 2.2m customers in the fourth quarter, compared to forecasts of 1.5m.

Among the mid-caps, food sales over Christmas helped drive a strong performance from pubs group Greene King, which added 9.6p to 442.6p after it issued an upbeat trading statement.

Moving to the non-alcoholic end of the market, soft drinks group Britvic was 27.3p better at 431.7p after it said sales for the 12 weeks to 20 December had fizzed up 11% to £242.7m. Old favourites like Robinsons squash did well, as did newer products such as Fruit Shoot H20 and Gatorade. But the company cautioned over the prospects for the next quarter, given consumer caution and the recent cold snap.